Understanding Investment basics…

INVESTMENT is the placing of capital for the purpose of getting some income return and/or an increase in the invested principal. Return in the form of interest constitutes a rental for the use of the money and as such has been socially acceptable for thousands of years; indeed, tablets and inscriptions from ancient Egyptian and at a specified rate was a common business transaction even in those days. The modern world contains many investment media; among them are real estate, commodities, bonds, stocks, and savings accounts.

All forms of investment have in common the following characteristics:

1. The amount in-vested, called the principal.

2. The rate of re-turn, usually stated as an annual rate in per cent.

3. The degree of risk.

4. The liquidity, or how quickly the investment may be converted into cash.

5. The capital gain, or increase in the value of the principal, sometimes termed the grown factor.

Assuming a certain principal amount, the other four factors vary widely with the nature of the investment.

In order to achieve high safety and high liquidity, growth and rate of return must be sacrificed. On the other hand should high return or growth be desired, it is equally apparent that some degree of safety and liquidity must be sacrificed. No investment will combine high safety with a high rate of return; these are always in inverse relationship, and it must be borne in mind that this is a basic fact of both savings and investment in general.